Returns On Capital Are Showing Encouraging Signs At Marco Polo Marine (SGX:5LY)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Marco Polo Marine (SGX:5LY) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Marco Polo Marine:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.15 = S$31m ÷ (S$239m - S$39m) (Based on the trailing twelve months to March 2024).

Therefore, Marco Polo Marine has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Shipping industry average of 7.2% it's much better.

Check out our latest analysis for Marco Polo Marine

In the above chart we have measured Marco Polo Marine's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Marco Polo Marine .

What Can We Tell From Marco Polo Marine's ROCE Trend?

We're delighted to see that Marco Polo Marine is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 15% on its capital. In addition to that, Marco Polo Marine is employing 83% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Marco Polo Marine's ROCE

Long story short, we're delighted to see that Marco Polo Marine's reinvestment activities have paid off and the company is now profitable. And a remarkable 218% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Marco Polo Marine that you might find interesting.

While Marco Polo Marine may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.